The "Compound Interest of Kindness": Fixing Philanthropic Market Failure via Behavioral Engineering

By Jesus Rivas @ 2025-12-08T16:42 (+3)

Summary This post introduces Redona/MatchingGov, a conceptual standard designed to bridge the gap between tax incentives and charitable giving. Currently being piloted in Spain and modeled for the US (post-2026), France, and Canada, this initiative applies behavioral science to capture the "lost capital" of tax refunds. We are not building a new platform; rather, we are advocating for major donation software providers to adopt this standard as a default "fiscal nudge."

1. The Diagnosis: From "Cheaper Giving" to "Impact Multiplication"

Western tax systems allocate billions to subsidize philanthropy. Yet, in the US, a massive inefficiency exists for the 90% of donors who do not itemize their deductions. This isn't due to a lack of generosity, but simple math: for most people, the Standard Deduction is higher than what they would receive by detailing individual expenses. Consequently, their charitable giving currently yields zero marginal tax benefit.

The proposed 2026 OBBBA Act opens a historic window of opportunity by allowing this "Forgotten 90%" to deduct donations "above-the-line," regardless of their itemization status.

However, access to the deduction is not enough. The traditional value proposition to donors has always been: "Donate, and it will cost you less." Redona's disruption flips this narrative: "Donate, and the State will help you increase your impact."

We aim to shift the donor's mindset from personal cost-savings to impact multiplication, ensuring this new fiscal liquidity flows back to the non-profit sector rather than into personal consumption.

2. The Behavioral Leak: Why Billions Are "Lost"

Even if the new law passes, a failure remains. It is not fiscal; it is psychological. We leverage three core concepts from Behavioral Economics to diagnose why this potential capital often leaks away:

• Mental Accounting (Thaler): When a donor receives a tax refund check months after donating, their brain labels it as "Found Money" or a windfall. Because money is not fungible in the human mind, this "found money" is psychologically earmarked for indulgence or absorbing household shocks, not for re-donating.
• Temporal Discounting: There is a significant time lag between the "pain" of giving (Day 0) and the "gain" of the refund (Day 180+). This disconnect breaks the reinforcement loop.
• Status Quo Bias: Re-donating a refund requires a new active decision. Friction kills the intention.

3. The Solution: A "Ulysses Pact" for Donors

To fix this, we propose a standard rooted in Pre-Commitment. Just as Ulysses tied himself to the mast to resist the sirens, we offer donors a way to bind their future liquidity to their current values.

The Mechanism: Instead of asking for a new donation later, the system asks for a commitment now, at the moment of peak generosity (the original donation checkout).

• The Trigger: A simple checkbox: "Commit my future tax refund from this donation to be automatically reinvested on May 1st."
• The Result: We convert a future "windfall" into a pre-allocated resource, bypassing the "Mental Accounting" trap before it activates.

4. Implementation Strategy: Infrastructure, Not App

Redona is not a consumer-facing app. It is a concept and API standard being pitched directly to the Software Providers that power the non-profit sector (e.g., platforms similar to Classy, Salesforce Philanthropy Cloud, or Stripe Giving).

Why Software Providers are the Key: We are incentivizing these providers to integrate this standard by appealing to their business metrics, not just altruism:

• Increased LTV: It automates a "second gift" without increasing Customer Acquisition Cost (CAC), raising the Lifetime Value of the donor by ~30%.
• Compounding: For recurring donors, reinvesting the refund creates an exponential growth curve (a "Snowball") that benefits the platform's processing volume.
• Differentiation: It positions the software provider as a leader in "Smart Philanthropy".

By embedding this logic into the "plumbing" of existing donation forms, we achieve scale without needing to acquire individual users.

5. Global Scalability & The 2026 Horizon

This standard is designed to be agnostic to the specific tax code, provided a deduction exists:

• Spain: Currently serving as the live pilot environment for this operating model.
• United States: Preparing this framework for the proposed 2026 OBBBA Act, ensuring the newly enfranchised 90% of donors have a tool to maximize their impact immediately.
• France & Canada: Markets with high deduction rates (up to 66% in France) where this behavioral loop could immediately multiply impact.

6. Discussion

We invite the EA community to critique this behavioral model. Specifically:

• Choice Architecture: What are the most ethical and effective ways to present this "Ulysses Pact" in a UI to maximize opt-in without using "dark patterns"?
• Platform Advocacy: What is the best route to lobby major philanthropic infrastructure providers (like Blackbaud or GoFundMe) to adopt an open-source standard like this?